The NBA Board of Governors is "days away" from approving Mikhail Prokhorov as the Nets’ new owner, according to reports. There’s also confirmation of a month-old report that the Russian billionaire has agreed to throw another $100 million into Barclays Center.
In a report on Saturday’s game with the Jazz, the Star-Ledger’s Dave D’Alessandro wrote, "the oligarch is just days away from getting the keys to the crumbling kingdom" while a Nets insider adds that the NBA board is expected to meet and approve Prokhorov as principal owner before the end of the month. Prokhorov passed the league’s background check more than a month ago, according to the New York Times.
Prokhorov needs the votes of 23 of the league’s 30 owners to gain control of the franchise and become the NBA's first owner outside North America. In a recent interview with SovSport, a Russian sports website, Prokhorov expressed optimism that it wouldn’t be an issue. He said he has been "surprised by the almost unanimous support" from the owners and expected "to complete the transaction in the first quarter of 2010." Two owners, the Mavs’ Mark Cuban and the Celtics’ Wyc Grousbeck have publicly welcomed his purchase of the Nets, as has David Stern.
Meanwhile, it appears he’s going to add to his already substantial investment in the team and the Brooklyn arena project. Last December, Project Finance magazine hinted Prokhorov was prepared to provide much of the final piece of Barclays Center financing: $146.8 million in bonds for arena infrastructure. Bond rating agencies had required that the arena infrastructure bonds—to fund physical structures connecting the arena to the rest of Atlantic Yards—be marketed separately from the $511 million needed for the actual arena construction. The infrastructure bonds will be issued by the arena holding company while the arena construction bonds are being issued by the Brooklyn Arena Local Development Corp., a state agency.
Project Finance wrote back then that in addition to having a "majority position" in the team (80%) and a "substantial minority position" (45%) in the arena, Prokhorov would have a "majority position in the subordinated bonds", that is, bonds for the infrastructure. That majority position wasn't further described. Project Finance added the decision to issue the bonds would be made in January. (The bonds, because they are corporate and not tax-exempt, weren't covered by the December 31 deadline. That applied only to the arena construction bonds.)
Now, there’s word from inside the franchise that Prokhorov has indeed committed to buying more than two-thirds of the infrastructure bonds--$100 million worth. The remainder will reportedly be marketed by Forest City Enterprises, the Cleveland-based company that is currently the team’s biggest shareholder at 23%. FCE is controlled by Bruce Ratner’s extended family.
The manner in which the debt is structured will also give Prokhorov effective control over the arena and in fact could give him actual control in one (unlikely) circumstance.
As Project Finance wrote in December, "If Prokhorov buys the subordinated [infrastructure] bonds, which are serviced through lower quality and more uncertain cashflows, and the project experiences a sustained period of weak financial performance, then in the event of a default on the subdebt, he would take control of the project."
Critics have noted the consequences of such a default. Norman Oder of Atlantic Yards Report wrote, "The upshot, though, is that the enormous state effort to get the project going--the Blight Study, the use of eminent domain, the tax-exempt bonds, etc.--could turn out to provide the most significant benefits to Russia's richest man."
Prokhorov has already agreed to invest $200 million to secure 80% of the team, 45% of Barclays Center and an option to purchase 20% of the overall Brooklyn project, the $5 billion Atlantic Yards. He also agreed to assume 80% of the team’s debt, approximately $175 million, and eat $60 million of the Nets' operating losses while they remain in New Jersey.
Construction of the arena is expected to take two years, during which the team hopes to move temporarily to Newark’s Prudential Center. The NJSEA, the Nets landlord at the IZOD Center, has thus far refused to waive a $7.5 million penalty the franchise would have to pay to move from the IZOD to "the Rock". The Nets have refused to say the penalty is a deal-breaker and expressed continuing interest in the move.